March 4, 2012

Burbed has often maintained that It’s Special Here, and therefore home prices can never go down (offer does not apply to homes not in the Real Bay Area). Careers, employment, and investments, however, can and do change. This is a rather bleak look at what happens when one was a Have but is not longer part of that group.

REDWOOD CITY, Calif. — The first time Michele arrived at the Maple Street homeless shelter three years ago, she was still driving her BMW 325xi, the final remnant of her Silicon Valley affluence.

Her paper wealth of more than $2 million had evaporated a decade earlier, she says, via a stock options fiasco. She had used the options to buy stock in her high-flying software startup, netting a seven-figure profit by the government’s reckoning, but then held the shares until they were nearly worthless. That left her with no cash and a $200,000 tax bill. She had sold nearly everything to cover it: her house, her remaining stocks, her art collection.

Periods of joblessness, punctuated by depression and bouts with alcoholism filled out the ensuing years, with cause and effect blurring into a cohesive whole — one life, unraveling.

She had used the shelter as a way station, finding a new job at another software company within two months and then moving into a rented apartment. But by last November, just before Thanksgiving, she was out of work again, broke again, and back at the shelter, again. This time, she arrived on foot, carrying a backpack that contained all she had left in the world: some clothes, about ten dollars in cash, her laptop computer and her mother’s Omega watch.

This is a fairly long piece (3 pages) covering a few who had a high-flying life but are now looking at shelters and the Food Bank. The Brookings Institution had recently examined the growth of suburban poverty, and the SF Bay Area wasn’t one of the growth standouts. Nonetheless, the poverty rate in Bay suburbs has increased from 7.3 to 9.2 percent over ten years, or just over one out of eleven suburban residents.

There are stronger indicators of problems. San Mateo County has tripled the number of people receiving food stamps in the last five years. Second Harvest Food Bank is now serving 250,000 in both San Mateo and Santa Clara Counties, an increase of 50 percent over the last four years.

Homelessness can be rendered invisible in this area when you drive from nice home to nice office in your nice car. One of those profiled said you’ll notice it when you have to ride the bus. In San Mateo County, you can even apply for county assistance at a kiosk or online from home (assuming you still have one).

Here’s how the various people profiled in the HuffPo article ended up losing it all.

The unnamed former Oracle sales exec invested his $6 million into tech stocks, and lost most of it. The rest has been spent down over three years of unemployment. He is now asking a social services agency for assistance with his rent and was told to take in a roommate before they would help.

Steven Carey formerly owned a mortgage finance company, which was clobbered in the 1990s by Wall Street firms entering the sector. He moved into subprime mortgages after declaring bankruptcy, and was again caught short when credit dried up in 2009. After living out of his car and then at a homeless shelter, he now lives in another shelter he is managing.

Liza Tellez and her family lived in Gustine where she worked in a permit office, which was busy from all the exurban home construction. Her husband commuted to Silicon Valley, working as a marketer. When work hours were reduced for both and then ended, they lost their large home to foreclosure, and she moved back to San Mateo. She couldn’t find a job, farmed her children out to different relatives, and eventually ended up at a family homeless shelter where many of the clients were struggling with alcohol or behavior problems. She is now looking for Section 8 housing.

Michele, who grew up in Woodside and had an EE degree from Duke, had to sell everything, including her Menlo Park house and her BMW, to pay the tax bill for exercising her startup options. The stock eventually became worthless. She admits she did not understand how to manage her money and spent lavishly when she was flush. She is the only one of the four to have found a high-paying job again, but is living in a home for recovering alcoholics. She does not have enough savings to pay the high security deposit she would need due to her bad credit or to buy a car.

41 Responses to “Is it better to have Had Special and have Lost?”

I live in the RBA (Palo Alto), and work 80 hours per week at 12 dollars per hour. My wife does the same. This puts our household income at >100k, with a 2 bedroom apt in prime location, 2 10 year old cars, and maximizing our 401k and roth ira contributions yearly.
These estimations are ridiculous. No one works 40 hours per week except the VCs who can afford to. No single mother working a minimum wage job can make it without the help of family or the government.

I was homeless, couch-surfing, in Mountain View then a short time in San Jose then back to Mountain View, then Aromas of all places then I finally settled down where I am now, happily in a fixed location.

I never accessed any of the “services” other than the sunnyvale job center place near the library – very nice and helpful folks! – to use their computers and they showed me how to write a modern resume that resulted in a short-term job. Mainly, I was able to get by fine on a couple hours of spare-changing a day and had lots of time to work on bettering my situation, and thus I only dipped my toe into homelessness for a matter of months. I hardly considered myself homeless in fact, since sleeping on a couch even in an apartment with a bunch of chaotic other people living there, is still far from actually sleeping on the street. The services I did find, were things like, “Spend $10 getting to the other side of the valley on public transportation, and they’ll give you $10 worth of food”. A reasonably fit person can get by much better doing casual work, dumpster diving, washing windows, you name it. There are a zillion street-level ways to get casual work, and there’s always spare-changing as the ultimate safety net, be polite and thankful and perhaps know a few good jokes, and there are always people who will flip you the same $2 they were going to flip to the indifferent barista at Starbucks.

TL:DR – There are a lot of homeless folks who are getting by without showing up on the radar.

Oh, and I have to mention, Why didn’t all of those high-flyers save money aside for hard times? US Savings Bonds just like my Great-Aunt Mary who’d been through the Depression always said to? I’m guessing the same reason I didn’t. They, and I, have not been through an actual Great Depression yet. We’re just starting into one now. We, and those younger, are the start of a new generation of string-savers and paperclip-reusers.

Utterly ridiculous. Work less and get out more, you’ll meet lots of people who live a regular life by eschewing many trappings of a materialistic life, at median salary. You are how you spend, not what you earn.

Actually I think average work-hours are down so while there may be a few working 80 hour weeks, which is crazy, more are working something like 35 downsized from 40.

It is INDEED how you spend, that typifies who you are. I make very little, but contributed a lot more to help out others than I did when I was making a fair RBA income and all stressed out, owing everyone, and time-poor.

Most of the “spend” is fixed. It’s not a matter of habit. You need insurance; you need food; you need utilities; you need gas etc. If you have kids, you have other costs that are not optional.

I don’t really have much discretionary spending, just because I don’t need much “stuff”. I buy clothes about once a year, usually in January when things are on sale after the holidays. Other than that, I can’t think of many things I spend on. I don’t even get Satellite TV anymore, because when I had it I could hardly find anything worth watching.

Your reading comprehension skills seem to need help. How do you save enough money to be unemployed for three years? Or to pay a retroactive tax bill like the one that passed on stock options (and generally hit low-level startups much harder than CEOs it was aimed at)? How much should you save for the hard times? Infinite? Or was it a bad joke?

The biggest reason poverty isn’t on the rise in the RBA is because those communities are good at forcing homeless and poor out, so they move further and further outside the bay before they become destitute. And once they are destitute, they criminalize basic things, like putting a potted plant on your stoop. (Actual threat to friend whose landlord changed the rental agreement to state that nothing is allowed on the porches of any of the units in his apartment building).

One kid full time child care, at least $1,000/month. One kid after school care, often another $1,000. $2500 for rent or mortgage and I can see where they come up with $80k. I agree with Crissa – people get pushed further and further out and the bubble we live in where houses hold or increase in value, people have jobs that pay huge salaries – it may be the RBA but the rest of the country (and beyond – cover of the NYT magazine about London Olympics) – its not like here. Case in point – my cousin recently purchased a home in Florida with schools (thru either 6 or 8th grade) rank among the top in the country – 2,000 sf, pool, corner lot, gated blah blah blah – $225? Maybe $235? Granted you have to feel good about retired New Yorkers (lawng island native here) – but that house – maybe worth $400 or $500 back in the day. Ofcourse one needs a job there….anyway, as far as the high flyers coming down – don’t know some of the ins and outs Crissa referred to. We took a huge pay cut for better job and after living on the new salary for a year I thought why had we not saved more on the old salary? It was that trip to Vancouver, replacing the car with 200k miles on it, a child with some issues not covered by insurance….no flashy jewels, not even a fancy car…

Buying a new Porsche every year gets expensive, too. Fortunately this year I bought one for me and another for the wife, plus a couple extras for the kids, and a got a volume discount. Plus we scored a couple grand trading in last year’s models! Win-win!

To summarize: Housing is one component of a household’s overall spending. For most of us, it’s a significant but not dominant component. Childcare cost could be just as much if not more. Auto cost can be pretty modest if you don’t change cars like how some people change jobs. I think it’s quite feasible to still drive the same car when your mortgage is paid off.

“I think it’s quite feasible to still drive the same car when your mortgage is paid off.”

Yes, likely possible, but what is the duration of the mortgage versus the economic life of the car?

I know a guy who died in 2011, yet the last time he purchased a vehicle was in the 1950s. He drove the same vehicle for over 50 years. Simply put, I’m happy to buy a new vehicle more than once in my lifetime.

Auto costs will be modest until the plastic in your car wears out, parts become unavailable, or someone slams into your car (the fate of most of the cars I’ve owned. What do you do when someone turns into your lane? I stopped, but that didn’t stop him…)

Of course, if you didn’t save up, or used up your savings during a downtime, the credit bill for paying things like food and necessities for work will add up. We had $30K of such debt built up, about half of it from when the card company spiked our rent when SBC bought out AT&T and slammed our telephone then reported us as deadbeat for $50 when AT&T owed us $100. Universal default they called it. Scummy is what I called it.

“when the card company spiked our rent when SBC bought out AT&T and slammed our telephone then reported us as deadbeat for $50 when AT&T owed us $100. Universal default they called it. Scummy is what I called it.”

That was before the credit card reform. And the credit card issuers actually considered 30%+ interest on a high balance a fair penalty for an alleged minor incident. Identity theft? Sure you might be able to patch the situation up after some long period of time, but what does one do when your credit card issuers suddenly raise the cost of capital?

Ha ha. Minor incident. I had an AT&T Universal card and they jacked the rate up to 30% not because of a “minor incident,” but because they didn’t want us to use it anymore. We had this bad habit of paying our credit card bills in full so they couldn’t make any money off pounding us with interest month after month. They were hoping we’d cancel it.

I think it’s better punishment for us to keep it and only use it once a year. Ha ha.

I am waiting hear the stories of “having been out” from a guy whose only discretionary spending are buying January on-sale clothing, having ramen-dinner and business trip once in a hear (and that is also in company’s expense). :/

By the way, I also have very minimal vacation expenses. Hotel and flights are almost always covered by points. Even breakfast is covered by Status. This is why my money is usually invested as opposed to spent.

Real Estater,
I am Steve Young the famous NFL player. Looking your PwC salary figure, it does not look like your household is in “higher income” range, unless your wife earns more than you from her real estate and loan processing commissions. What you earn is not a “lot of money” in SF Bay Area. I donate more than your salary to my Mormon church every year.

And speaking of “junks”. Everyday I jog on your street. Your front porch is an eye-sore of the neighborhood. It’s full of junk, probably bought from end-of-summer sale at hardware store. Could you clean up your front porch little bit – especially those ugly looking patio chairs?

By the way, I also have very minimal vacation expenses. Hotel and flights are almost always covered by points. Even breakfast is covered by Status.
—-

Hi Real Estater,
I am an avid traveler and I would like to know more about your vacation strategy. You seem to be my kind of guy when it comes to traveling. Do you take conducted bus tour for site-seeing? What kind of hotels do you get with points? Typical chain hotels as opposed to local inn or B&B? And what kind of breakfast do you get with Status? Do they allow you to sneak out pancakes so that you can eat at lunch? Your input are welcome.

Disclaimer

The posts on this weblog are provided "AS IS" with no warranties, and confer no rights. The opinions expressed herein are my own personal opinions and only represent the view of Burbed.com's editor. Comments are the views of commenters, not Burbed. If companies, properties, etc are mentioned on this blog, you should assume that I have a financial stake in them. Trust no one.